Health care debate

As the first provisions of health care reforms begin to take effect, some industry executives express concerns about higher costs and hidden requirements.

By Richard Turcsik

We have to pass the health care bill so that you can find out what is in it,” Speaker of the House Nancy Pelosi uttered back in March, just before the landmark le­gis­lation was passed.

Now that more as­pects of the health care legislation are coming to light—and being implemented—many supermarket industry officials either do not like what they see or simply do not know yet how this legislation is going to impact them. What they do know is that they are quite anxious to see how this all plays out.

“Health care is the No. 1 concern of our members,” says Frank DiPasquale, executive vice president of the National Grocers Association, the Arlington, Va.-based trade association representing independent supermarket operators. NGA polled its members in March, and health care came out as the top concern, ahead of the economy, taxes and another hot topic—globalization.

“Family-owned businesses are so tied into the community,” DiPasquale says. “They are about people, their employees and their customers, so much that not being able to do the right thing concerns them. They want to do the right thing, and the fact that they are unclear as to what to do as a consequence of this troubles them very much.”

The unknown is clearly the biggest concern for the grocery industry. “We are unionized, but nobody knows [how this will effect us],” says Bill Chanatry, CEO of Chanatry’s French Road Market, a bustling one-unit independent in Utica, N.Y. “There is no question that whatever happens is not going to be good. There’s no question that the costs are going to go up. We can’t tell you how much. 10%. 15%. We just do not know. Nobody knows. And you don’t know where to get that information. You call your Congressman. He doesn’t know. He supported the bill and signed for it, but he doesn’t know.”

For now, benefits are remaining the same at Chanatry’s and other upstate New York unionized operators, says Frank DeRiso, president, UFCE Local 1 in Oriskany, N.Y. “Right now there is no change. Our members aren’t concerned because they have coverage already. We’re not part of the 45 million people who do not have health care coverage. We’ve had it for years, so there is no concern for us,” he says, adding that the union is keeping its members abreast of changes when they arise through newsletters and its magazine.

Nonetheless, many feel that once the health care legislation is fully implemented, major changes are on the horizon. “If you are running a company today that is not self-insured then you have some very difficult decisions,” says Neill Crowley, professor of food marketing at Philadelphia-based St. Joseph’s University.

Costs to soar

Crowley, for one, expects retailers’ costs to rise dramatically. “Where there is concern is if the treatment applications become much more expensive, then there is going to be an impact on the P&L, and that is going to have to be passed through because chances are the company won’t eat it,” he says.

That, experts note, will inevitably mean higher prices for consumers. “Anytime you begin to look at experiencing higher cost and your labor union comes to you, the choices are to either pass it on to the customer, or we figure out a better way to split the baby,” Crowley says.

Call it Obamacare, health care re­form or its proper name of the Patient Protection and Affordable Care Act (PPACA), but some industry observers feel that its tentacles are working their way into just about every aspect running a store, changing how business has been conducted for decades. Full-time workers are now defined as those working 30 hours or more per week, down from the industry standard of 32, for example, which observers say will wreak havoc on staffing.

Retailers have to alert their employees about all benefits, entitlements and changes in writing, or be subject to stiff fines. That will likely require the hiring of a dedicated staff or outside firm to deal with all of the legalese. The so called “Cadillac” plans of extensive health care benefits which many retailers bestow upon their management as incentives will be taxed and have to be offered to all employees, lest they be deemed “discriminatory.”

“One of the biggest health care concerns for employers is rising health care costs,” says Robert Zirkelbach, press secretary at America’s Health Insurance Plans (AHIP), a Washington-based trade association representing the medical insurance industry. “The new health care reform law does virtually nothing to bend the cost curve, and, in fact, in­cludes a number of provisions that will make health care more expensive. That is the opposite of what health care reform was supposed to accomplish. The biggest issue for employers is costs. Costs are already going up and rather than take real reforms to make coverage more affordable, the new law exacerbates the cost crisis facing the country,” he says.

Shedding light

Experts say many of the costs are buried in the 2,300-plus-page act. “There is a new small business health insurance tax that goes into effect in 2014 that very few employers realize is going to be hitting them,” Zirkelbach says.

Observers say that there are dozens of other hidden requirements in the legislation that will add to the cost of doing business, such as necessitating that employers provide rest breaks and ac­commodations for nursing mothers to express breast milk for up to one year after the birth of the child. Accom­modations have to be a dedicated room, other than a bathroom, that is shielded from view and free from the intrusion of co-workers and the public.

“The devil is in the details of all of these things,” says Jennifer Hatcher, senior vice president, government relations, at the Food Marketing Institute (FMI), based in Arlington, Va. “It is becoming a full-time job for a whole group of folks in the HR/benefits department to keep up with all of this.”

State associations are also concerned. “The biggest thing with this whole health care reform is that we’re going to continue to find skeletons in the closet for a long while,” says Tom Jackson, president and CEO, Ohio Grocers Association, based in Columbus, Ohio. “This is going to be haunting us for years down the road.”

Dave Logue, a retail counselor for Merchants Distributors, Inc. (MDI), a Hickory, N.C.-based wholesaler, recently attended a meeting sponsored by the Georgia Food Industry Association to educate that state’s independents about PPACA. “The presentation given to us at the meeting pretty much scared the death out of everybody,” Logue says. “Retailers were talking that this could very well put them out of business.”

Jodie Braner is one of the people sounding the alarm. She’s an account executive at Pritchard & Jerden, Inc., the Atlanta-based insurance consulting agency that helps companies select the correct insurance policies and providers for their needs.

Uncertain timeline

PPACA was signed into law on March 23, with an enactment date of six months later. That means the legislation is impacting policies that began renewing after Oct. 1.

“I noticed that the majority of the retailers didn’t have a good handle on what the timeline was and the details,” Braner tells Grocery Headquarters. “I could tell it was a very good educational opportunity for them. I focused on the recent regulations because the timeline that happens in 2011, 2012, 2013 and specifically 2014 is questionable—it hasn’t been regulated so it could very well change.”

First up, retailers with policies coming up for renewal have to determine if they want to keep their plan as is—called grandfathering—or not. On the surface grandfathering sounds like an easy way out, but Braner cautions that option throws up a lot of red flags. “You basically can’t change your deductible, your co-insurance, your co-payments more than a certain percentage of medical inflation,” she says. “You can’t change insurance companies, and here is the biggie, you can’t change your contributions. You as an employer will see an increase in your premium, but if you want to stay grandfathered you can’t pass that along.”

“There was a promise made that people who like their coverage can keep it,” Zirkelbach says. “Grandfathering says if you keep your current plan you are grandfathered and don’t have to abide by all of the new rules and regulations. But then HHS [Health & Human Services] issued regulations over the summer on what are the parameters to keep your grandfathered protection, and they were extremely restrictive.”

Zirkelbach says it is too soon to know what impact this will all have on the insurance industry, but so far 2014—the year the bulk of the legislation is slated to take effect — doesn’t look rosy. “Several insurance commissioners have sent letters to HHS saying that they need a waiver, at least for a couple of years, to transition to these new reforms or it could drive some plans out of the marketplace altogether.” That would result in few insurance choices for employers and individuals, he says, and lead to even higher prices.

Less flexible

One aspect of PPACA that will hit retailers on both the employee and customer side is the major changes slated for flexible spending accounts.

“The flexible spending accounts that we’ve all worked very hard over the years in educating, indoctrinating and change behavior about, they’ve all but gutted that program,” says NGA’s DiPasquale. Starting in 2011, OTC medicines will not be deductible from a flexible spending account without a doctor’s prescription. “So for all intents and purposes, flexible spending accounts don’t become or are not really a meaningful way of providing health care.”

FMI’s Hatcher notes that the key word is “drugs.” A bottle of aspirin will no longer be covered, but a box of Band-Aids will. “There is the issue of communicating that to your customer,” Hatcher says. “On Dec. 14, they can purchase something, but when they come back in January, all of a sudden they can not. There hasn’t been a lot of information in the public about this at this point.”

It is also going to change the classification of certain, items, such as some allergy medications, that may be available over the counter, but can also be purchased with a doctor’s prescription. “We’re honestly hopeful that with the new Congress this may be an aspect of the health care law that can be repealed because we just haven’t found anyone who thinks this is a good idea,” Hatcher says. “It clearly will drive up health care costs by saying that if you take a Claritin every day for allergies that now you have to go to the doctor and pay $100 for an office visit to get a prescription to buy your $15 Claritin.”

New full-timers

The redefinition of a full-time employee as anyone working over 30 hours a week will also have an impact on overall health care costs, according to many industry officials. Under this new law, employers have to either put anyone who is working 30 hours or more per week on the insurance plan, provide a subsidy for them to go out and buy their own insurance policy, or be fined a minimum of $2,000 per uncovered employee.

“Beginning in 2014, every supermarket company is going to have to be very careful that no one works more than 29 hours per week,” says Jackson of the Ohio Grocers Association.

“I have a large member that has 130 people that qualify and are on their group insurance right now. They have another 170 that would qualify if the 30-hour a week is imposed. They would more than double the size of their group. That’s a significant impact on our industry.”

Supermarkets are unique in that their employment needs vary according to the time of the month. “A number of states still issue all of the SNAP (Supplemental Nutrition Assistance Program) benefits on the first of the month,” Hatcher says. “So the stores then have to have a large number of employees during the first week of the month, but at the end of the month they don’t have the same need for the labor.”

PPACA’s impact is also going to be felt differently by union and non-union chains, Hatcher says. “One of the biggest issues our union plans are facing right now is that there is this new law and new guidance coming out from the agencies, but then there are the union contracts. So to the extent the requirements don’t match the contracts, these provisions have to be renegotiated,” she says.

“At FMI, we’re working on setting up a different subgroup working group, so some of those folks with union plans can share ideas and some of those with non-union plans can share ideas, since there are different impacts.” The one hope many industry officials maintain is that changes will be made to PPACA now that the Republicans will control the House in January.

“I don’t see this going away, but I do see it being amended,” says Braner of Pritchard & Jerden. “I would be surprised if we don’t see some reform and possibly major reform of the health care legislation,” says NGA’s DiPasquale.